Property − Singapore - UOB Kay Hian 2017-09-18: The Next Wave

Property − Singapore - UOB Kay Hian 2017-09-18: The Next Wave Singapore Property Sector Enbloc Sales WING TAI HLDGS LTD W05.SI GUOCOLAND LIMITED F17.SI WHEELOCK PROPERTIES (S) LTD M35.SI

Property − Singapore - The Next Wave

  • We foresee the nascent recovery spreading to the mid-range and high-end segments in the next wave, driven by replacement demand from enblocers and a pick-up home-buying interest from foreigners. 
  • We expect Singapore property prices to rise by 5-10% next year after bottoming out this year. 
  • Our top picks are Wing Tai, GuocoLand and Wheelock.


Enbloc fever is picking up, and we believe we are still in the early cycle of the recovery.

  • Historically, spikes in enbloc sales have preceded property sector price recovery in the past cycles in 2007 and 2011. The levelling of taxation costs and cooling measures are also building up the relative appeal of Singapore real estate to foreign buyers.


Collective sales still at the one-fifth mark of 2006/07 cycle, which suggests ample room for more enbloc sales. 

  • Already, the collective sales value transacted in 8M17 has topped S$3b, exceeding the combined transactional value in the previous four years (2013-16). However, we believe that we are still in the nascent stages of the enbloc fever, which could run until the end of next year, as a surge in enbloc sales could span between six to eight quarters. 
  • The collective sales in 2016/17 ytd is comparable to 2011/12, but only 21% of the cumulative sales transacted in 2006/07, suggesting further room for more enbloc sales.

Replacement demand from enbloc sales to fuel mid-/high-end segment. 

  • The 2006/07 enbloc sales cycle took out around 10,000 units and correspondingly minted a similar number of millionaires seeking replacement properties. 
  • In the nascent cycle from 2016-17 ytd, about 2,000 units have been taken out, with another 1,000 units in advanced stages. 
  • As the cycle progresses further, collective sales could be fuelled by more replacement demand. The wealth effect would likely see the millionaire enblocers upgrading to the mid/high-end segment, and further feeding the cycle.

Risk of oversupply once enbloc fever subsides. 

  • While the 2006/07 enbloc sales cycle took out around 10,000 units, it put back twice as many units into the market. According to JLL estimates, the 3,000 units (including the ones launched for tender) could yield 12,000 units in new developments. 
  • Besides, owners’ rising price expectations (if unrealistically high) may deter developers from the enbloc route, if they believe that the margins are not worth pursuing. 
  • Generally, developers prefer GLS to enbloc, as it is relatively hassle free and will turn around more quickly (whereas in enbloc situations, owners objecting the sale can take matters to court).

Enbloc market as a key source of supply for the mid-range/high-end segment. 

  • The GLS programme has focused mainly on the mass market segment, with only a few sites in the mid-/high-end segment. In the 2H17 GLS programme, the mid-/high-end segment made up just 24% of the potential 7,810 units. 
  • With the governments focusing on the mass market, GLS will rarely have sites in the mid-/high-end segments. Hence, developers looking to develop in the mid-high end will look to the enbloc market as a source of supply. There are about 30-40 residential properties islandwide trying to enbloc at various stages.

Increased foreigner participation to boost mid-range/high-end segment demand.

  • Although foreign purchases grew by 20% in 9M17 compared with the same period last year, they accounted for only 22% of the sales volume in the private residential market ytd. This compares against 30/32% in 2007/2011 cycle. 
  • Ytd, foreign (PRs and foreigners) purchases accounted for 29% of the high-end market, much lower than the 41% level in 2007. We believe there is scope for Singapore to absorb potential capital inflow from foreign buyers, as their transaction volume still has room to grow. 
  • The return of foreigners’ buying will benefit the mid-/high-end segment in particular, as they tend to favour the prime city centre, which sees higher demand for leasing.

Levelling of playing field to bring foreigner buying interest back to Singapore.

  • Foreign purchases have tapered down, especially after the implementation of Additional Buyers Stamp Duties (ABSD) 10% from Dec 11 and 15% from Jan 13. As overseas regimes caught up with harsher property cooling measures to moderate housing prices and limit foreigners' participation, we expect buying to move up to the mid-high end segment, driven by foreign demand. 
  • The levelling of taxation costs overseas is building up the relative appeal of Singapore real estate to foreign investors. In Nov 16, Hong Kong doubled its stamp duties on overseas property buyers to 30% eclipsing that of Singapore's 15%. In Taipei, a punitive divestment gains tax of as high as 45% was unveiled in Jan 16, dwarfing Singapore's Sellers Stamp Duty (SSD) of 12%. Australia and Canada have also raised the transaction costs for foreigners to own property.

Inflection point? 

  • Traditionally, spikes in enbloc sales are early indicators of a turnaround in the residential property market in Singapore. The two enbloc fevers in 2006/07 and 2010/11 both preceded the rally in the Property Price Index of Residential Properties. 
  • We can already see a slight firming up, led by mass-market properties. We believe that the recovery should trickle up to the mid/high-end segment. 
  • We expect property prices will bottom out in 2017, followed by a 5-10% increase next year.


Maintain OVERWEIGHT; top picks: Wing Tai, GuocoLand, Wheelock. 

  • The next wave of recovery in the property sector will be predominantly driven from the bottom up, starting from the mass-market and flowing over to the high-end segment. 
  • The return of enbloc sales and greater scope for foreign participation should power the high-end segment ahead, benefitting developers with such landbank exposure. 
  • Our top picks are Wing Tai, GuocoLand and Wheelock.

Vikrant Pandey UOB Kay Hian | Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2017-09-18
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